Back to top

Image: Bigstock

AIG Declines 27% Year to Date: Will It Recover in 2021?

Read MoreHide Full Article

American International Group, Inc.’s (AIG - Free Report) performance has exhibited a downtrend so far this year primarily due to adversities induced by the COVID-19 pandemic.

The company’s revenues have remained under pressure for the first nine months of 2020 primarily on account of lower premium volumes and decline in policy fees. Following the coronavirus outbreak, stringent restrictions imposed on travel have significantly dented the company’s premiums. It is worth mentioning that the insurance companies have been grappling with challenging operational conditions for more than a decade. The current pandemic has aggravated the difficulties of the insurance companies to operate efficiently.

The pandemic-induced volatilities dealt a severe blow to lower interest rates, which had been prevailing in the United States for quite some time. The interest rate cut by the Federal Reserve in the United States following the coronavirus outbreak has been weighing on the investment yields of several insurance companies and AIG is no exception to the trend. Case in point, the company’s net investment income fell 12.3% year over year in the first nine months of 2020. With interest rates expected to remain at lower levels in the near term, the investment income of the insurers is also likely to remain under pressure in the days ahead.

Moreover, the company’s property and casualty (P&C) business has remained susceptible to severe catastrophe and weather-related losses, which has induced volatility to its underwriting results and also acted as a drag on the bottom-line growth. The pandemic further led to an uptick in occurrence of pre-tax catastrophe losses in the AIG’s General Insurance business.

These headwinds have dragged down the stock, which fell 27.2% on a year-to-date basis compared with the industry’s decline of 12.1%.

Other companies in the same space such as Assurant, Inc. (AIZ - Free Report) , MetLife, Inc. (MET - Free Report) and MGIC Investment Corporation (MTG - Free Report) declined 0.2%, 10.8% and 11.3%, respectively, in the same time frame.

Nevertheless, AIG has been committed to providing a comprehensive financial planning for retirees amid the pandemic, which has not only aggravated financial insecurities of the retirees but also gave rise to the alarming need for employers to provide for enhanced retirement solutions thereby ensuring well-being of their employees.

Furthermore, the company is on track to separate its Life and Retirement business, which will evolve as an independent company in due course of time. Divesting the business will allow the company to streamline operations and intensify focus on high growth areas — General Insurance. The divestiture plan has been accelerated by the company’s belief in robust growth prospects of its General Insurance business as a stand-alone organization.

Also, the company’s cost-control initiatives aimed at organizational simplification, operational efficiency and business rationalization are likely to provide a boost to its operating margins. The multiline insurer is well on track to achieve $300 million in exit run rate savings for this year and $1 billion in overall run rate savings by the end of 2022.

Notably, AIG carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>